By Matt Gertken
About the author: Matt Gertken is chief strategist of geopolitical strategy and U.S. political strategy at BCA Research.
Investors could be forgiven for ignoring Iran's rolling periods of civil unrest, which usually quiet down within a few months.
But as hundreds of thousands of Iranians protest in the streets, the survival of Iran's regime seems seriously at stake for the first time since it assumed power in 1979. The risk of a global oil supply shock if the regime crumbles is high, around 40%.
Last year, when the U.S. and Israel knocked out Iran's nuclear program, financial markets reacted calmly. Brent crude prices rose 30% from a trough on May 5 to their peak on June 19, but sank after that. U.S. energy stocks only rose 14%, compared to 20% for the S&P 500.
The summer conflict fizzled quickly. Iran's leaders chose to accept the damage to the nuclear program rather than risk their entire regime by retaliating. The U.S. was able to restrain Israel and then signal that its intentions were limited to the nuclear program. Neither Israel or Iran have struck regional oil production over the past two years of hostilities.
Now, however, Iran's regime is in critical danger no matter what it does, which raises the potential for larger consequences. Oil has risen by roughly 4% this year on this risk.
President Donald Trump has threatened "very strong action" if Iran's leadership continues to repress mass protests. More than 2,600 civilians have been killed and thousands more arrested. Trump said Wednesday he believed Iranian leadership had "no plans for executions." Yet the regime cannot survive without more repression.
Hence Trump's likelihood of intervening. The question now is how to go about it.
Trump is rightly skeptical of U.S.-imposed regime change, especially in the Middle East. He rose to the top of the Republican Party by repudiating its tattered legacy of failed "nation building." See Iraq and Afghanistan.
Trump has used military intervention in more targeted ways, such as destroying Iran's nuclear program in June, assassinating Iran's military leader in 2020, and, most recently, removing alleged drug-traffickers in Venezuela (including its president). He doesn't want the U.S. to pay the fiscal burden of security and reconstruction in more failed states. You break it, you buy it.
But unlike Venezuela, Iran can retaliate in ways that hurt the president and his party in a midterm election year. It can attack U.S. bases in the region and halt shipping in the Persian Gulf and the Strait of Hormuz, through which about a fifth of the world's oil and a fourth of its liquefied natural gas flow. Still, Trump can hardly ignore this golden opportunity to change Iran.
Iran's currency, the rial, has collapsed. Inflation is soaring. Gross domestic product growth and imports are falling. The regime's credibility is shot. On top of that, Supreme Leader Ali Khamenei is 86. His succession is nigh, hence the opposition has every reason to raise pressure and demand structural concessions.
If Trump does nothing, he will look feckless, like President Barack Obama during Iran's Green Revolution or Syria's civil war.
Trump's safest course of action then is to hit Iran's nuclear and ballistic missile facilities. The impact would be similar to that from June: Oil would spike then fall while stocks grind higher. Treasuries wouldn't get much of a bid, as the risk of escalation would swiftly fade.
But Trump's promise to "rescue" protesters shows he is considering riskier options: striking the regime's domestic security forces that are embedded in major population hubs. That wouldn't involve attacking core government or military facilities. But success would jeopardize the regime and thus could provoke major retaliation anyway.
In this case, oil could rise by double digits and keep rallying. Stocks could stall due to uncertainty and widening risk of a negative economic impact from oil. Treasuries would catch a bid as a safe-haven asset.
Attacking the top leadership, Iranian Revolutionary Guard Corps, critical infrastructure, coastal forces, and other core assets would ensure that the regime retaliates by targeting regional energy production and shipping -- effectively asking for the oil shock the president doesn't want.
Major oil shocks, on average, cause a 20% increase in oil in the short run and a 40% increase over the subsequent 12 months. Big shocks can see the oil price double over a year, and an attack on the Strait of Hormuz would be the biggest. A doubling of oil prices often leads to recession.
Oil prices eased after Trump seemed to suggest he wasn't leaning toward strikes. He said he will "watch and see" what happens with the regime's killing of citizens.
Trump knows he doesn't need to risk his political future by toppling the Iranian regime. He can issue new sanctions and conduct surgical strikes, in an attempt to create a change of Iranian national policy without triggering regime change and subsequent oil shock.
Even then, the risks are still high. The Iranian regime, embattled by protesters, the U.S., and Israel, could panic and, in a frenzy, overreact.
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January 16, 2026 09:29 ET (14:29 GMT)
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